Budget 2017-18 changes and dealing with property
You may be aware that there have been a host of changes coming through around purchasing and holding property in Australia. Some of the most notable, and potentially risky, changes for a purchaser if they are not aware of their new obligations have been considered at Camatta Lempens by our property team: Franco Camatta, Amanda Forsyth, Victor Draghicescu and Stephanie Cogno-Maglieri.
Purchasers of new residential property set to pay GST at settlement
When purchasers of newly constructed residential properties or new subdivisions pay the purchase price to a developer, the purchase price is inclusive of GST which is remitted to the Tax Office by the developer. As of 1 July 2018, the obligation will now fall on purchasers to remit the applicable GST directly to the Tax Office at settlement. At Camatta Lempens we have revised our settlement processes and are equipped to ensure that neither the purchasers or buyers we represent are caught out at settlement (or after).
Foreign resident capital gains withholding tax: changes from 1 July 2017!
The foreign resident capital gains withholding (“FRCGW”) tax rules provide that where foreign residents dispose of certain Australian property assets, purchasers are required to withhold and pay 10% of the purchase price to the Tax Office at settlement as foreign resident capital withholding tax.
These rules currently apply if the contract price for the sale of Australian property is $2M or more.
Come 1 July 2017, the threshold contract price will drop to $750,000 and the withholding rate will climb to 12.5%.
This is a major change as post 1 July 2017, many more transactions for land will slip into the scope of the FRCGW rules.
If a contract to sell property worth $750,000 or more is entered into on or after 1 July 2017, vendors will have to consider whether they are eligible to obtain a clearance certificate from the Tax Office certifying that they are an Australian resident to prevent any FRCGW obligation at settlement. Equally, purchasers need to be sure the appropriate Tax Office clearance certificate is provided by the vendor prior to settlement in order to avoid having to withhold and pay 12.5% of the purchase price to the Tax Office at settlement (there are applicable penalties).
It is important to note that the existing withholding threshold ($2M) and rate (10%) will apply for any contracts that are entered into before 1 July 2017, even if settlement is scheduled for post 1 July 2017 (in simple terms, the effective date is the date of the contract, not the settlement date).
If you are looking for advice on your obligations surrounding either purchasing or selling real property in Australia please contact one of our friendly transactional property team on 08 8410 0211.